Oromia Insurance Company S.C(OIC) pays over half a million birr in livestock insurance

Oromia Insurance Company SC (OIC) has settled its first batch of livestock insurance payment for pastoralists who are based in Borana Zone, Oromia Regional State.

The insurance firm, which was incorporated in January 2009, commenced Index Based Livestock Insurance (IBLI) for Borena pastoralists in August 2012, who have been suffering from persistent droughts.

On Saturday, November 1, 2014, OIC paid over half million birr claim for pastoralists affected in the area, according to the information obtained from the insurance firm.

Previously drought and allied problems that crop up each year, severely affect the pastoralists owing to inadequate pasture and water resource management in their areas.

The majority of the pastoralists have been losing their livestock which they entirely depend on.

OIC, one of the 15 insurance companies in Ethiopia, embarked on IBLI in August 2012 and has been underwriting this product in ten pastoral woredas of Borana Zone, Oromia region.

The IBLI Ethiopia project builds on lessons learned from a highly innovative program, similarly led by a partnership between International Livestock Research Institute (ILRI) and Cornell University in Northern Kenya that is currently being scaled up.

The Borana IBLI product was designed by correlating publicly available satellite data known as Normalized Differenced Vegetation Index (NDVI), with field-based research of seasonal average herd loss.

As drought has been observed in the last three months at the zone, the payout has been triggered and OIC is poised to pay the insured pastoralists 570,000 birr in 10 woredas.

Officials from OIC told Capital that 509 pastoralists have received the first claim for scarcity of forage cause of drought as per the contract.

In 2014, OIC sold 1,138 policies covering 2,563 head of livestock. OIC gives the insurance cover for cattle, camel and goats for 6,000 birr, 10,000 birr and 800 birr, respectively.

The International Livestock Research Institute (ILRI) and Cornell University designed Index Based Livestock Insurance (IBLI), a drought insurance product that enables pastoralists to transfer drought risks to insurance company. IBLI is a new insurance product that has been implemented in Kenya for the first time. Ethiopia is second in implementing the product in both in Africa and the world.

Index Based Insurance (IBI) is used to protect against shared rather than individual risk such as risks associated with weather fluctuations, disease out breaks or price loss. Unlike traditional insurance which assesses loses on a case by case basis and makes payouts based on individual client’s loss realizations, IBI offers policy holders a payout based on the external indicator which triggers a payment to all insured clients within a geographically defined space.

Having sufficiently modeled this relationship, one could then write an insurance contract based on a rainfall or forage indicator to protect against various degrees of aggregate livestock losses. Users pay a regular insurance premium and receive payouts when an index trigged such as rainfall failure; unavailability of forage crosses an agreed trigger point.

OIC is one of the two insurance firms that introduced micro-insurance to Ethiopia. It began in July 2010 by issuing Multi Peril Crop Insurance Policies to different Farmers’ Cooperative Unions in Ambo, Meki Batu, Becho Woliso, Lume Adama and Erer woredas. The policy covered staple crops against loss or damage caused by multiple perils including drought, hailstorms, excessive rainfall, flood, frost, fire and lightning.